CANADA FX DEBT-C$ recovers after sell-off; CPI weighs

* C$ at C$1.0288 vs US$, or 97.20 U.S. cents
    * May CPI weaker than market forecasted
    * Stocks, oil recover after Thursday selloff
    * Bonds tick up at short end, dip at long end

    By Jennifer Kwan
    TORONTO, June 22 (Reuters) - Canada's dollar eked out a
small gain against its U.S. counterpart on Friday, recovering
along with broader equity and oil prices after a sharp sell-off
the day before on global economic growth fears.
    Oil rebounded Friday from 18-month lows and global stocks
stabilized as investors looked to possible crisis resolution at
upcoming meetings of European leaders rather than at weak data.
    At around 8:55 a.m. (1255 GMT), the Canadian currency
 was at C$1.0288 to the greenback, or 97.20 U.S. cents.
But it touched C$1.0301 versus the U.S. dollar, or 97.08 U.S.
cents, its weakest since June 13, just after domestic data
showed Canada's annual inflation slowed more sharply than
expected in May to 1.2 percent. 
    Inflation, down from 2 percent in April, was below the 1.5
percent median forecast by analysts in a Reuters poll.
    The closely watched core annual inflation rate, a better
measure of underlying price trends because it excludes eight
volatile items, stayed closer to the Bank of Canada's 2 percent
target, easing to 1.8 percent in May from 2.1 percent in the
previous month.
    "Overall it's a little bit softer than market expectations
so it will likely add to the underlying softness we've seen in
the Canadian dollar recently," said Doug Porter, deputy chief
economist at BMO Capital Markets.
    However, Porter added the central bank has "got much bigger
items on their plate" than inflation.
    "I don't think inflation is crowding the top of anybody's
worry list at this point. So I don't think it has a big effect
on the Bank, but at the very least it just sort of reinforces
the message that there's not any rush for the Bank to act on its
tightening bias," he said.
    Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that traders slightly
increased bets on a rate cut in late 2012 after the inflation
    The yield on the two-year Canadian government bond
, which is especially sensitive to Bank of Canada
interest rate moves, fell to 1.025 percent from around 1.051
percent just before the release. 
     The benchmark 10-year bond was down 18 Canadian
cents to yield 1.768 percent.